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EUR/USD Selloff Staunched By Better GE Data

Last updated 11/30/2011 4:49 AM ET (GMT -5) 0 Comments - Add your comment

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Boris Schlossberg

Director of Currency Research, GFT

Top Stories

• GE Unemployment, Retail Sales beat forecasts
• Risk under pressure as Shanghai slide by more than -3%
• Nikkei off -0.51% Europe -1.20%
• Oil at $99/bbl
• Gold at $1708/oz.

Overnight Eco

• EUR German Retail Sales 0.7% vs. 0.1%
• EUR German Unemployment Change -20K vs. -6K eyed
• EUR French Consumer Spending 0.0% vs. 0.1%
• EUR Unemployment Rate
• CHF KOF Economic Barometer n/a

Event Risk on Tap

• USD Challenger Job Cuts y/y
• USD ADP Non-Farm Employment Change expected at 131K
• USD Chicago PMI expected at 58.5
• CAD GDP m/m expected at 0.3%

Price Action

• USD/JPY at 78.00
• AUD/USD well off Asian session highs are .9975 after weak Asian stocks
• GBP/USD drops to 1.5550 on risk off flows
• EUR/USD drops below 1.3300 but holds above 1.3250 as data better

The EUR/USD was pressured in Asian and early European trade but remained above key support levels as negative investors sentiment from China and further concerns regarding EZ stability were somewhat offset by better than expected economic data out Germany.  The pair spent most of early European trade under the 1.3300 figure after Shanghai equity markets sold off by more than -3% - their biggest decline in three months.

The tumble in Chinese equities was prompted by comments from  Xia Bin, an adviser to the People’s Bank of China, who said the nation’s restructuring of its economy will depend on fiscal policy rather than on a loosening of monetary policies. This view disappointed Chinese investors who were hoping for a more accommodative stance from monetary policy officials that could provide additional liquidity for financial assets.

Risk currencies were also affected by comments from the Italian regulator suggesting that the euro was at risk of breakup unless the ECB assumed a much more aggressive role to support the single currency. Investor sentiment remains cautious as a comprehensive plan for the EZ credit crisis remains elusive, but EUR/USD managed to hold support at the 1.3250 level and recovered some its losses as the morning progressed boosted by better than expected German data.

On the economic front both German Retail Sales and Unemployment beat expectations helping to lift equities off their lows.  German Retail Sales rose 0.7% versus 0.1% eyed while German unemployment declined by a much better than expected -20K versus -6K eyed. The news on the labor front was especially impressive as unemployment in Germany fell to a 20 year low. The data suggests that at least for now the real economy in Germany is not being affected by the fallout from credit markets as demand remains buoyant. 

Ironically enough, the strong labor market conditions in EZ largest economy may make it more difficult to come up with a comprehensive solution for the region’s credit crisis. Until and unless German population feels some economic deprivation it may be far less amenable to full fiscal integration which in turn would only exacerbate the current problems in the union. 

In North America today the focus turns to the ADP employment report and the Chicago PMI data. Markets are anticipating an increase in ADP to 131K and a flat reading in Chicago PMI at 58.5. If both data points surprise to the upside USD/JPY could get a boost higher. The pair has rallied from 77.00 over the past few days on the anticipation of stronger than projected US Q4 growth. If today’s economic reports continue to confirm this thesis then USD/JPY could begin to pull away from 78.00 level target 78.50 as the day proceeds.    

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About The Author

Boris Schlossberg began his Wall Street trading career more than 20 years ago at Drexel Burhnam Lambert. There, he traded nearly every type of financial product on the market in the U.S., from equities and options to stock index futures and foreign exchange. His innate ability to analyze market information and use it to trade has helped him become an industry-recognized, “go to” trading professional.

These days, whenever the markets move, many organizations turn to Schlossberg for his take on the situation. He is a weekly contributor to CNBC's Squawk Box and a regular commentator for Bloomberg radio and television. His daily currency research is widely quoted by Reuters, Dow Jones and Agence France Presse newswires and appears in numerous newspapers worldwide. Schlossberg has written for publications like SFO magazine, Active Trader and Technical Analysis of Stocks and Commodities. He is also the author of Technical Analysis of the Currency Market and the co-author of Millionaire Traders: How Everyday People Are Beating Wall Street at Its Own Game with Kathy Lien. He joined GFT in 2008.